asset finance - business car finance

Business car finance

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What is business car finance?

Business car finance refers to the different ways a company can borrow money to purchase a car. Instead of paying the full price upfront, your business can choose to spread out the cost over time. That way, you can buy the cars your business needs while managing your cash flow effectively.

There are various business car finance options available, each designed to accommodate specific needs and different financial situations. 

How does business car finance work?

Business car finance works by spreading the cost of acquiring a car over a set period. There are several different finance options available such as hire purchase, finance lease, operating lease or contract hire. These options offer flexibility in terms of ownership, repayment structures, and end-of-term options, allowing you to choose the most suitable solution for your budget and requirements.

Here’s a step-by-step overview of how business car finance works:

  1. Choose a car by assessing your business’ needs. For example: what size do you need? Will you need to transport anything? Will you need more than one car?
  2. Next you’ll need to start your car finance application. You can do this by searching for funding with Capitalise. Once you fill in the questionnaire, you’ll receive dedicated support from a funding specialist who’ll match you with providers who offer the kind of business car finance you’re looking for. When it's ready, your application will be sent to up to four car finance providers of your choice.
  3. If you’re approved, you’ll enter into a loan agreement with the lender. The terms will be outlined, including the loan amount, interest rate, repayment schedule, and any additional fees.
  4. Depending on the provider, you'll either get the car, or you’ll receive the money you need to buy the car. 
  5. Your business will start making regular payments according to the agreed schedule. These payments cover the principal amount borrowed, plus interest and any other applicable fees.
  6. Depending on the finance option you’ve chosen, at the end of the agreement you’ll either: own the car after your final payment; have the option to purchase it; return the car and upgrade to a newer model or return the car and end the agreement. 

Why use business car finance?

How do I finance a car through my business?

To finance a car through your business, you’ll need to do the application in your business’ name. The lender or car finance provider will then assess your application based on information such as your business credit score and financial history. You’ll likely need to provide the following documents: 

  • 6 months business bank statements
  • Annual financial accounts 
  • Balance sheet

The lender will then use this information to assess whether they can offer you a loan and determine the terms. 

You may want to work with an expert to help you finance a car through your business. When you search for business car finance with Capitalise, our funding specialists can help guide you through the process. 

Advantages and disadvantages of business car finance

Advantages of business car finance

  • Rather than tying up a significant amount of working capital in a single purchase, business car finance allows you to spread the cost over time.
  • You can make significant savings when you purchase a business car through asset finance as you may be eligible for Corporation Tax relief. 
  • Using car finance allows you to purchase newer models and electric or hybrid cars, which you might not otherwise consider affordable.

Disadvantages of business car finance

  • Financing a car typically involves paying interest over the term of the agreement, which can increase the overall cost.
  • Depending on the finance option, you may not own the car outright until the finance agreement is fully paid off. This can restrict your ability to modify or sell the car.
  • Cars generally depreciate in value over time, and if you opt for a finance agreement with a balloon payment or residual value, you may be exposed to the risk of owing more than the car is worth at the end of the term.

Tax considerations for business car finance 

Car finance can offer your business tax benefits. On cars that you purchase for your business, you could claim capital allowances. Claiming capital allowances reduces your VAT bill as you can deduct part of the value of the car from your profits before tax. The amount you can claim as capital allowances may depend on factors such as the vehicle's CO2 emissions and whether it's a new or used vehicle.

You can find out more about capital allowances from the government website. 

What are the different types of business car finance? 

Typically, you’ll have several options when it comes to financing a car through your business:

Hire purchase (HP): your business pays an initial deposit followed by monthly instalments over an agreed term. Once all payments are made, you own the car outright.

Finance lease: your business essentially rents the car for an agreed period. At the end of the lease term, you can either return the car, extend the lease, or purchase the car for a pre-agreed amount.

Operating lease: Similar to a finance lease, an operating lease involves renting the car for a fixed term. However, with an operating lease, you typically have the option to return the car at the end of the lease without any further obligations.

Contract hire: Your business leases the car for a fixed term and mileage, paying a predetermined monthly rental fee. At the end of the contract, the car is returned to the leasing company, eliminating concerns about depreciation and resale value.

How much does business car finance cost?

The total amount your car finance costs will include the value of the car, plus any interest and fees. 

How much you repay each month will depend on a number of factors. If you paid an upfront deposit, then the overall loan amount will be reduced. 

Your interest rates will also affect your monthly repayments. Which rates your business can access will depend on factors such as your financial health, turnover, profitability and whether you have a good business credit score


Business car finance calculator 

To help you estimate the costs involved in financing a car, you can use our business loan calculator. This will take into account factors such as the car’s purchase price, deposit amount, term length, and interest rate to provide an estimate of monthly repayments.

Can I get business car finance with bad credit?

You could still get business car finance with a poor business credit score. As the car loan will be secured against the asset, some lenders put less weight on your business credit score. However with bad credit, you may be subject to higher interest rates and the lender could require you to put down a larger deposit.

frequently asked questions

A business loan is a lump sum of money borrowed from a lender that can be used for various business purposes. This could include purchasing a car, but it could also be used for working capital, business expansion or any other need. 

On the other hand, business car finance specifically refers to financing options tailored for acquiring vehicles for business use. 

Yes, if your business is based in the UK you can claim 100% tax relief in the first year if you purchase your business car using hire purchase. 

There are some rules and exemptions that apply, for example the car must be used exclusively for business purposes. You could speak to an accountant to be clear on the current legislation and tax relief that applies, or you could take a look at the government website

Both business car finance and leasing involve acquiring a car for business use, but they differ in ownership and payment structure:

Business car finance: You make fixed monthly payments towards owning the car outright. Once all payments are made, you gain full ownership of the car.

Leasing: You pay for the use of the car over a set period, typically with lower monthly payments compared to financing. However, you won’t own the car at the end of the lease term, unless you choose to exercise a purchase option.

There are a number of benefits to buying an electric company car. For example the running costs are lower and you could access a government grant or incentive. However, the choice between whether to purchase an electric, petrol or diesel company car will depend on your individual circumstances and preferences.

There are many other vehicle finance options available in addition to business car finance. For example, you could use business finance to purchase a van, a truck, a fleet of vehicles, an HGV, or  a tractor.